Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  
Google
Web www.equitybulls.com
Interesting Articles

| More

Electricity (Amendment) Bill 2021 - A Review - Balaji Vaidyanath and Devang Patel

Posted On: 2021-07-21 05:33:46 (Time Zone: UTC)


Balaji Vaidyanath (@nbalajiv) and Devang Patel - Nafa Asset Managers Private Ltd

The Ministry of Power has proposed amendments to the Electricity Act (2003) - in the form of a draft bill that is pending approval - that will unleash the next set of reforms in the power sector and address some major issues plaguing the sector.

Electricity (Amendment) Bill - major timelines:

- Apr-20: Draft bill circulated to other ministries and to the public for consultation
- Jan-21: Note seeking Cabinet approval was circulated
- Jul-Aug-21: Bill could be introduced in Parliament post Cabinet approval.

Electricity Consumption in various countries

Key Proposals:

Cost reflective tariff - to reduce cross-subsidies and replace it with DBT

SERCs to determine retail tariffs based on actual cost or fair cost of the supply and without subsidy as against currently being determined based on state's subsidy commitments. Any subsidy is to be provided directly to consumers through DBT. Currently, the cross-subsidy rates on average cost of supply is over 50% in some states vs the max 20% prescribed in the 2016 National Tariff Policy - hurting industrial and commercial users that end up paying very high rates.

Transmission and Distribution Losses of various countries

National Renewable Energy Policy - to better enforce renewable targets

Central government in consultation with state governments will notify and prescribe minimum renewable and hydro purchase obligation and levy penalties for shortfall. Currently, the targets are prescriptive and left to various State Governments upon their own initiatives. To ensure strict compliance with RPO, penalties to be increased.

Constitution of Electricity Contract Enforcement Authority (ECEA) - to enforce PPAs

The ECEA shall be the adjudicating authority for contract/PPA related disputes as CERC/SERCs are having limited enforcing power. This seeks to address some of the uncertainty caused by actions of some State Governments in the recent past, in attempting to renegotiate executed.

Single committee for selection of ERC/APTEL members - to ensure timely appointments

A common national selection committee will be constituted to select the chairperson and members of APTEL, ERCs and CEA instead of separate and state-wise separate committees that will reduce the time taken to fill up vacancies that takes upto 2 years and hampers ERCs functioning. State power may reduce drastically with representation by rotation in the national committee. Alternatively, state committees may continue to function as standing committees under the national committee.

LDC empowered to oversee payment security - to ensure timely payments to gencos

Regional and State Load Dispatch Centres will be prohibited from dispatch of electricity if adequate payment security is not provided by the distribution licensee which will help reduce the delay in collections by gencos.

Allow distribution sub-contracting - to aid in privatisation

A distribution licensee will be able to authorise a franchise or a distribution sub-licensee to distribute electricity on its behalf with the prior permission of the SERC which will help reduce the entry barriers for private sector participation in distribution.

Why the Need for these changes:

Despite multiple sets of reforms since 2003, the electricity sector is still beset with problems of operational inefficiencies and financial solvency that has a spillover impact on other sectors and manufacturing competitiveness.

Huge and rising subsidies given off-balance sheet:

Direct tariff subsidies from state governments in FY19 amounted to Rs 1.1tn - up from 0.75tn in FY16. Cross subsidies are not well reported but estimated to be another 0.75tn. Since there are borrowing limits on state budgets, this burden is shared with discoms and gencos. Powermin estimates the revenue due to Discoms but not collected due to inadequate tariffs (total regulatory asset) at Rs 1.4 tn. Payables to Gencos and Transcos reached 2.26tn as of Mar'19. About 75% of the subsidies is towards agriculture. Share of Agri at 17% of electricity is way higher than other countries. (see exhibit).

Electricity - Persisting Market Distortions

Weak discoms and under investments:

Due to the rise in subsidies, the gap between average cost and realisation remains high. Discoms continue to run up losses and build up their debt. This in turn affects the investments by them. AT&C losses at ~20% are falling but regularly miss reduction targets after every discom bailout and are 2x the world average. (see exhibit)

India Transmission and Distribution Losses

Impact on other sectors and competitiveness:

The burden of cross-subsidy borne by industrial and commercial consumers increased from Rs 67,785 crore in FY16 to Rs 75,027 crore in FY19 - their tariffs have gone up over this period. (see exhibit). Stronger companies shift to captive power, leaving the weaker companies to higher tariffs. Industrial tariffs are over 2x of that in China on PPP terms as per IEA. (see exhibit). Discom problems are delaying adoption of distributed generation and net metering.

Industry Electricity Prices in India

DBT for better targeting and discipline:

Currently there is no upper limit on subsidised consumption, leading to poor subsidy targeting. Food and fertiliser subsidies have been rationalised through DBT and the same can be achieved in the electricity sector. DBT will lead to better accounting and targeting of subsidies. It may ensure that state governments release the subsidies on a timelier basis. There will be no restrictions on state subsidies but the states will be required to give it upfront through DBT, bringing down the under-collections and improving DISCOM health - leading to better quality supply to industrial and residential consumers.

Cash Losses

Implementation Risks:

Despite several attempts and regular bailouts, Discom debt keeps piling up and is estimated to reach 6tn in FY22. Electricity being on the concurrent list has led to slow pace of reforms in the sector. Subsidies are a political hot potato - what give and take happens and how quickly the government can push through the reforms - remains to be seen.

Key Beneficiaries:

- Lenders, mainly REC and PFC

- Equipment manufacturers including meter companies, solar and wind component manufacturers, cable and transformer companies on feeder separation.

- T&D franchisee players like Torrent, Adani, Tata Power

External Debt - PFC - REC


Source: Equity Bulls

Click here to send ur comments or to feedback@equitybulls.com


Other Headlines:

Tips to save Income tax in FY 2021-22

NPS Growing at Decent Pace, Performed Well Even During Pandemic Period: PFRDA Chairman

The Yamuna Syndicate Limited acquires 20,000 shares of ISGEC Heavy Engineering Ltd from open market

Decoding: Pledging of shares and upfront margins in the cash market!

SIDBI joins hands with Govt. of Rajasthan for the development of MSME ecosystem in the State

Are promoters using rights issue to increase their stake in the company?

All you want to know about Rights Entitlement

45% of the customers have taken moratorium PAN India; more observed in the northern region of the country: Finway

DISCOM dues balloon to ₹1.199 trillion

TNPL recommends dividend of Rs. 6 - Dividend Yield @ 5.45%

HUDCO - Rs. 2.35 dividend recommended - Dividend Yield @ 7.01%

PTC India Ltd - Rs. 5.50 dividend recommended - Dividend Yield @ 11.46%

PNB Gilts Ltd - Rs. 3 dividend recommended - Dividend Yield @ 8.57%

How to apply for Rights Issue of Arvind Fashions Limited?

How to apply for Rights Issue of Aditya Birla Fashion and Retail Limited?

An insight on Aarti Surfactants Limited

Covid-19 and its impact on businesses

Nifty Gained 8% in the June Series, Bank Nifty Surged 12%-Highest Since March 19 - HDFC Securities

IMF Growth Revision for India - Acuité Ratings & Research

Co-operative Banks - RBI Supervision - Acuité Ratings & Research

HDFC Securities views on relaxations announced by SEBI

India can reduce China trade deficit by over $8 billion in FY21-22 - Acuité Ratings & Research

How can investors preserve their wealth during times of crisis

JM Financial Yield Enhancer (Distressed Opportunity) Fund I raises Rs.160 crore in its first close

Samco Securities launches BTPT - Buy Today, Pay In Two days for Investors Buying Stocks

No data breach of BHIM app: Report

India's sovereign rating downgrade by Moody's - Acuité Ratings & Research

Banking Sector Credit Trends - Unusual trends - HDFC Securities

Rollover Report for May - June 2020: Angel Broking

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research on Q4 GDP

Mr. Dhiraj Relli views on GDP Numbers - HDFC Securities

Banking Sector Update - NIM compression on the cards - HDFC Securities

May series ends with a bang: Angel Broking

May 2020 F&O Series Expiry - Mr. Nandish Shah, Technical Research Analyst, HDFC Securities

Views on Impact of Locusts Attack on Agriculture - Acuité Ratings & Research

ICAI establishes Center for Audit Quality

Bharti Telecom raised over Rs. 8433 crores through Accelerated Book-build offering of equity shares of Bharti Airtel

SATYA MicroCapital raises INR 105 crore equity funding from Japan-based Gojo & Company Inc.

Mr. Rajnish Kumar, Chairman, SBI & IBA on the announcements made by RBI today

Views of Mr. Umesh Revankar, MD and CEO, Shriram Transport Finance on RBI announcement

Views of Mr. George Alexander Muthoot, MD, Muthoot Finance on RBI announcement today

Views of Ms. Anagha Deodhar - Economist, ICICI Securities on the RBI announcement today

Views on RBI Policy announcement today - Federal Bank

RBI Monetary Policy (May 2020) by Shanti Ekambaram, Group President - Consumer Banking, Kotak Mahindra Bank

Religare Finvest Ltd. on today's monetary policy by RBI

RBI monetary policy announcement - Mr. Jyoti Roy, DVP Equity Strategist, Angel Broking Ltd

RBI's proactive measure will help revive economy: Dr.Niranjan Hiranandani

Mr. Dhiraj Relli views on today's announcement made by RBI

Views of Mr. R K Gurumurthy, Head - Treasury, Lakshmi Vilas Bank on the RBI announcement today

Suvodeep Rakshit, Vice President & Sr. Economist, Kotak Institutional Equities on RBI announcement


Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020